Revolution Investing: How to position your portfolio for this market

This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch. You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.

The guys on TV say we’re supposed to be talking about the Standard & Poor’s downgrade of the U.S. debt. The newspapers say we’re supposed to be talking about Spain and Italy and whether or not the ECB, and the World Bank can redistribute enough wealth upward to the elite and bank shareholders and lenders that they “save” the E.U. Wall Street analyst reports tell us that the markets might or might not be pricing in a new global or U.S. recession.

And certainly, we do need to talk about these market crashes over the last week. But just how sure are we that these guys are focusing on the right things? That anybody’s even looking at the primary catalyst for this sell off?

I got this instant message last night at 1:00 am from a friend of mine in Iceland:

“These riots in london are scary … the youth is so self-centered and lacking of ethics and compassion. The same with the Norwegian terror attack in Oslo … Very scary and hitting home … You getting any news about this over in your end?”

She’s in her mid 20s and was active in stopping the bank bailouts in her own country. Iceland, to review, had a bunch of corrupt bankers who created and invested and gambled on a bunch of lousy mortgage securities and needed a huge bailout and drastic austerity cuts to their social services to avoid bankruptcy and default.

The youth in the country revolted and the markets and economy tanked for a couple quarters … and then the resurgence started. Turned out that when the country forced corrupt bankers and the government they owned out and allowed smarter, more ethical managers to take over that things improved. And fast. And now the Iceland government is already back borrowing from the global markets are low rates and the country’s economy is expanding once again.

This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch. You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.

Contrast that to the approach that we took here in Ireland and Greece. Where they propped up the bank shareholders and lenders with welfare money, allowed the banks to continue fraudulent accounting practices by institutionalizing them, kept the corrupt bankers and traders and managers and regulators in place, and allowed them to pay out record bonuses with that welfare money while making drastic cuts to generations-old social services. You know, sort of like the Republican/Democrat regime did here in the U.S. And like they did in England. And in Norway and every other country that’s allowed the E.U. to pervert its mission of uniting the currencies and countries to one of simply looting for the elite and banks.

And people are angry. And now they’re taking to the streets and doing exactly to the establishment what the establishment has started explicitly doing to them — looting.

Likewise, the average American is also freaking out over the news that the same guys who took out bin Laden were themselves killed over the weekend. One of the guys had recently told New York magazine that they had been ordered to take Bin Laden out from the beginning, in contrast to what the Republican/Democrat regime leaders had originally told us.

People, even those like me who don’t consider themselves to be conspiracists or even-conspiracy-minded, wondered about the way Bin Laden was killed and disposed of, and now this? It rattles people to the core that our own soldiers are dying. When heroes/elite soldiers like the Green Beret guys who were taken out this week are killed en masse in one ugly attack like this, it’s horrific.

The upshot of all this is that whatever the reason for this current trashing of our stock markets, it’s the kind of ethereal, intangible catalyst that is truly the hardest kind to work through. It’s not going to be quick or easy because solutions to all of these issues are not going to be quick or easy.

But all that said, let’s also look past these issues. Unless you truly think that both the U.S. and E.U. economies and therefore societies are about to implode upon themselves and that we are headed into a Great Depression or something worse, then we’re likely already closer to pricing all off these problems into the markets already.

More likely, the reactions to these issues — U.S. debt downgrade, flash looting, mortgage title anarchy, E.U./euro debt crisis, threat of recession, etc — will be yet more corporate welfare, monetary easing, tax tricks for the biggest companies with the best lobbyists…in other words, more bubbles.

We added a short on Wells Fargo last week and the stock dropped 25% in the next few trading days, as the broader markets also tanked (though not quite that badly!). Our many smartphone/tablet/cloud stocks from Apple to Google and Marvell also took a big hit. That said, I’d also outlined repeatedly for subscribers to TradingWithCody.com that I’d been buying Cisco calls aggressively on weakness heading into their earnings report last week, catching a near-20% pop in the stock and doubling/tripling the value of the calls.

But our overall positioning of getting long for a new tech bubble while getting short for collapsing banks and other sectors that would be insolvent without ongoing welfare has helped us wildly outperform the markets since launch.

That continues to look like the right positioning.

This was a special free reprint of the current Revolution Investing newsletter published here on Markewatch. You can also sign up for a free one-week trial of my independent trading diary (where you get access to all my stock and option trades as I do them in real-time) with just your email address by signing up here.

Cody Willard writes Revolution Investing for Marketwatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Cisco, Marvell, Apple, Google and net short Wells Fargo.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.